Will The Real Definition of Supply Chain Management Please Stand Up
James D. Reeds, M.S., CFPIM, CIRM, C.P.M., CPCM
James D. Reeds, M.S., CFPIM, CIRM, C.P.M., CPCM, Adjunct Associate, Professor, Golden Gate University, San Francisco, California, 94105, 530/756-1848 and Research Associate, Henley Management College, Henley-on-Thames Oxfordshire, RG9 3AU, England, e-mail: email@example.com
85th Annual International Conference Proceedings - 2000
This paper examines numerous definitions of supply chain management [SCM] encountered in contemporary literature and offers a view that Supply chain management is an evolving concept, and that like Just-in-Time a decade before it, represents a collection of management philosophies rather than any one approach. Further, as it is an emerging concept, there is at present no commonly agreed upon working definition of Supply chain management upon which many can agree. This lack of definitional orthodoxy poses a dilemma to those seeking to better understand the concept. Ultimately, this definitional fuzziness can thwart both strategic and tactical implementation of supply chain management programs. This analysis examines various definitions offered for supply chain management in recent literature and at academic and practitioner conferences, and offers a useful perspective on the concept, which encourages greater clarity and understanding.
The Definitional Dilemma
We are constantly confronted with dilemma and paradox in our daily lives. As British scholar Charles Handy suggested, "Language is the dress of thought...The way we talk colours the way we think, and the way we think shapes the way we act. We are the unconscious prisoners of our language. While most of the time such a constraint matters little, at times of momentous change in culture or society, our use of old words to describe new things can hide the emerging future from our eyes." (HANDY. Supply chain management is certainly one of those terms before us of which many in academia and business alike seek a more thorough understanding.
Moreover, the communities of professionals representing the functional areas of logistics, production planning and control, and procurement and contract management have each evolved their own particular views of what constitutes supply chain management. While this condition may be argued to be a natural evolution in the understanding and definition of a relatively new concept, it can cause confusion on the part of the practitioner.
To gain a better understanding of any unfamiliar term or concept, a most natural approach is to seek out an appropriate description of the unfamiliar term or concept in a Dictionary. The American Production and Inventory Control Society (APICS) periodically publishes a dictionary of terms in use in the fields of production and resource management. It is especially critical that the definitions offered in this dictionary reflect some unity of thought on terms in use, because the APICS Dictionary is a cornerstone of a professional certification testing program administered by that professional society. In both the 1995 and 1998 editions, the following two definitions were offered for a "supply chain " [APICS Dictionary 8th and 9th Editions (COX and BLACKSTONE and COX)]
- The Processes from the Initial Raw Materials to the Ultimate Consumption of the Finished Product Linking across Supplier-User Companies.
- The Functions Inside and Outside A Company That Enable the Value Chain to Make Products and Provide Services to the Customer.
The first definition suggests that a supply chain concern a theory grounded initially along the lines of physical distribution and transport, using the techniques of industrial dynamics. (see FORRESTER). Reflecting this heritage, one theorist observed that a supply chain "covers the flow of goods from supplier through manufacturing and distribution chains to the end user." (CHRISTOPHER). The second APICS definition invites a closer look at the term "value chain," and its relation to the supply chain. The 1995 and 1998 editions define a value chain as: "the functions within a company that add value to the goods and services that the organization sells to customers and for which it receives payment."
The theory of supply chain management holds that, for the eventual product or service to be commercially advantageous to the organizations involved in its creation and provision, value must be added to a process faster than cost. The meaning of value derives from the consumer market and is translated back along the processes in the supply chain. (LAMMING).
Further consideration by APICS of the term, "management," in supply chain management yields a simple yet conservative view of its managerial dimensions: "The planning, organizing, and controlling of supply chain activities." (BLACKWELL AND COX). Beyond the APICS Dictionary, fuzziness over the aspects of supply chain management are revealed in recent articles of its monthly magazine, "APICS-The Performance Advantage." One writer offered: (PTAK): "Supply chain management is where there is an automated integration of demands from customers to the requirements from suppliers through the calculation of the ERP [Enterprise Resource Planning] system. Supply chain management provides the ability to quickly translate demands from the market to supplier requirements, and the goal is to minimize the amount of inventory in the supply chain, improve the agility of each link in the chain, and improve the profitability of all partners in the supply chain."
This definitional bias emphasizes the ascendance and importance of the role of information technology, and in particular, the implementation of robust production planning and control software. The software systems view is prevalent within APICS, a professional society whose members are largely populated by production planning professionals. However, another writer in "APICS - The Performance Advantage" cautions "ERP systems demand change, which is painful and often requires a fight...failure is a distinct possibility...Start by tackling problems in the supply chain." (QUIGLEY).
The APICS Education and Research Foundation (E&R) has sponsored recent conferences wherein both academicians and practitioners working together, have offered more holistic views of supply chain management. Recent papers have summarized four supply chain management challenges not previously widely considered within the planning community (WALKER and ALBER) and (ALBER and WALKER): (1) Supply chain management requires a competitive infrastructure; (2) The world-wide global logistics network must be leveraged; (3) Supply and demand must be synchronized and (4) Performance of all supply chain partners must be measured globally.
The National Association of Purchasing Management, offered this definition of "supply management" in its own dictionary: (NAPM, 1996) "A systems management concept employed by some organizations, designed to optimize the factors of material costs, quality and service. This is accomplished by consolidating the following operating activities: purchasing, transportation, and warehousing, quality assurance for incoming materials, inventory management, and internal distribution of materials. These activities normally are combined in a single department, similar to the arrangement under a materials management form of organization."
The NAPM definition reflects a disposition in some quarters to view supply chain management as (1) a largely organizational effectiveness and efficiency evolution, based on the optimization of functional tasks, and (2) whose focus is primarily directed at organizations and activities within a business enterprise. Little consideration seems to be given to extra-organizational relationships between business entities throughout the supply chain, nor is there attention paid to business processes. Within the professional purchasing community the emphasis on organizational relationships belies considerable tumult within the professional purchasing community as to its role within the concept of supply chain management. Pinkerton has observed: "The textbook definition [of supply chain management] along with purchasing professionals in general seem to underplay the importance of transportation logistics and overplay the role of purchasing. They would be well-advised to spend more thought, time, and effort on the entire field of channels of distribution-logistics, and thereby grasp the bigger picture of how they interact with [others.]" (PINKERTON) The suggested broadened focus of the purchasing profession under supply chain management is given some promise, in that society's renaming of its quarterly theoretical journal in 1998 from the "International Journal Of Purchasing And Materials Management," to the "Journal of Supply Chain Management: a Global review of Purchasing and Supply."
Perhaps the most comprehensive definition of supply chain management offered to date, was offered by writer David Ross in a 1997 book entitled, competing Through Supply Chain Management: "A continuously evolving management philosophy that seeks to unify the collective productive competencies and resources of the business functions found both within the enterprise and outside the firm's allied business partners located along intersecting supply channels into a highly competitive, customer-enriching supply system focused on developing innovative solutions and synchronizing the flow of marketplace products, services, and information to create unique, individualized sources of customer value." (ROSS) In this view of supply chain management as a dynamic-not static-collection of concepts and activities, supply chain management may be seen to exhibit the following characteristics:
- SCM is an evolving set of management philosophies
- SCM seeks to unify both internal and external competencies
- SCM fosters alliances and trust throughout the supply system
- SCM demands Innovation and synchronization of processes
- SCM focuses to optimize the delivery of products, services, and information
The Challenge: Integration Of Three Competing Views.
For today's practitioner, no matter their functional calling, the intellectual challenge goes well beyond questions of terminology. Moreover, one must seek clarity in the emphasis supply chain management places on strategic business planning and decision-making. Presently, at least three perspectives on supply chain management focus exist: (1) SCM is the management of the internal supply chain; (2) SCM is supplier-focused and (3) SCM is the management of a network of enterprises, which includes the customer as well as suppliers.
SCM Is the Management of the Internal Supply Chain.
The majority of definitions offered at practitioner and academic conferences maintain this perspective on internal activities. A focus on Enterprise Resource Management [ERP] software and the multitude of issues related to successful software supplier software selection and installation take up most of this literature. In this view, the thinking suggests that a first priority of a business enterprise is to integrate and optimize its own operations, before any attempt to extend supply chain rationalization "beyond its four walls" into the supply chain (WALKER and ALBER).
The internal supply chain focus does address issues of functional integration, and may be seen as a series of evolutionary steps. In one view, supply chain management may be viewed as the integration of previously separate operations within a business enterprise (CHRISTOPHER). Initial attempts at internal functional integration followed the Materials Management Concept of such activities as purchasing, inventory management, material control, stores, warehousing, material handling, incoming inspection, receiving, and sometimes shipping. Further integration was sought by linking information systems between sales order entry, production planning and control, and distribution. The focus on MRP/MRP II planning and control systems, and aligning customer demand and supplier response led to further functio0nal integration (CHRISTOPHER) and (HARLAND). A majority of firms attempting to engage supply chain management are still preoccupied with the internal integration of functional activities and material and information flows (CHRISTOPHER) and (HARLAND). For many firms, the real potential of supply chain management can only be realized once external integration of material, service, and information flows are attained (HARLAND).
SCM Is Supplier-Focused.
This emphasis underlines the importance of fostering long-term, collaborative relationships with key suppliers. The supplier-as-collaborator has been the focus of much of the purchasing and contract management literature for the past decade (see PINKERTON). The thrust of this thinking is based on a belief in the elimination of adversarial relations between buyer and seller and also forming relationships with fewer quality suppliers (BURT). This perspective requires a fundamental reframing of traditional procurement and contract management thinking (van WEELE and ROZEMEIJER). Long accustomed to adversarial relations between business entities, the driver of supply management thinking requires a dramatic shift to an emphasis on "relationship management," versus one based upon technical expertise organized along narrow commodity lines. (PINKERTON) and (BURT). Further, the alignment of purchasing and contract management strategies with overall corporate strategies will require professionals currently engaged in purchasing and contract management to develop much broader business skills than has been the case (BATCHELOR). It will also require a new response from supplier organizations, as well. (DYER, CHO and CHU)
SCM Is The Management Of A Network Of Enterprises.
This integrative view of supply chain management has its focus on the virtual and global nature of business relationships. The drivers of this perspective emphasize the horizontal integration of business processes and outsourcing of non-strategically critical functions and processes. Information technologies are the enablers (WISE AND BAUMGARTNER). Many barriers exist, not the least of which is the absence of useful measures of performance (MABERT and VENKATARAMANAN). A traditional reliance on the internal dates of need of material are no longer sufficient. New measures, which focus on embedded product and service quality, and the speed of response (agility) whose objective is to satisfy both internal and external customers throughout the supply chain are required. (STALK and HOUT).
Supply Chain Realities-Visual Presentations Of Supply Chains.
Along with conceptual fuzziness, supply chain management concepts are frequently hobbled by one-dimensional representations of the interrelationships between its elements, and the flows of both material and information. Traditional presentations typically view the supply chain as a one-dimensional construct (REEDS). Many presentations and articles default to a one-dimensional view of a supply chain-perhaps for no better reason that the limitations of graphic presentation tools. (REEDS). This simple oversight can limit one's ability to visualize the truly dynamic nature of a supply chain and its activities. A more realistic physical representation of a supply chain would be three-dimensional.
The Supply Chain As A Network.
Perhaps the most satisfactory graphical representation of the true nature of a supply chain is that of a three-dimensional network (REEDS) and (HARLAND). A network view helps to properly establish the relationships between corporate strategy and supply chain elements. The traditional view of strategy is one of strategic fit between existing resources and current opportunities, identifying core strengths to tackle a focused set of those opportunities. However, strategic intent is where an enterprise's ambitions stretch beyond its current resources, out into the unknown of the future. Thus, there can be an extreme misfit between current reality and future opportunities. A network view can help those responsible for strategy design, implementation, and execution to visualize the complex relationships of a typical supply chain into the future. The network view can also aid in an appreciation of the "economies of scope" between business enterprises within a supply chain (HARLAND). Scope refers to the range of significantly different products, processes, markets, geographical markets, and time that are concurrently present in any supply chain. Finally, a three-dimensional network presentation of a supply chain can better represent the dynamic nature of the relationships and flows of information, services, and materials. Most one dimensional models portray a supply chain as a static entity. In fact, the nature of the business relationships within a supply chain are ever-changing. .
Supply chains are dynamic
There Is More Than One "Flavor" of Supply Chain.
A typical presentation of a supply chain is one wherein an "ultimate" customer literally configures the contents and boundaries of the supply chain. That is, their demand drives the very existence of the supply chain, and thereby affects the performance and configuration of the relationships within it. This almost "feudal" model of a supply chain is prevalent in most business literature, and in the thinking of many American business leaders. (SHETH). One example might be a prototypical automobile manufacturer, who has played the major role in source selection of not only first-tier suppliers, but the suppliers' suppliers as well. There is extreme risk for suppliers engaged in such a supply chain: typically, the majority of their revenues are intimately tied to the vagaries of the "Ultimate Customer." The prevailing guideline in the interrelationships between the ultimate customer and their supply chain members is that of fear (SHETH). Another equally viable supply chain model is one that is "supplier-driven." In this scenario, there are many customers in the marketplace, but very few-if not only one, sole supplier. In such an instance the supplier or suppliers become quite selective in what may be best described as a "customer-selection process." The traditional roles between customer and supplier are literally reversed. Here, the customer must aggressively and proactively market the desirability of engaging in commerce with their firm to the few suppliers in the marketplace (SHETH).
A more reasonable scenario portrays supply chain relationships characterized by a "range" of business relationships, which are constantly undergoing redefinition. Some relationships are customer-driven, some are supplier-driven. Again, this perspective sees the supply chain as a dynamic set of interrelationships, which exist and redefine themselves constantly through time. Another term for this model of the supply chain would be a "Virtual Supply Chain" (REEDS). Other supply chain considerations which should be examined are (1) the size and sophistication of elements; (2) the levels of business acumen of the firms within the supply chain and (3) attention to the range of technical and financial capabilities of the various firms. In any instance where there is a potential or real weakness, consideration should be given to providing aid and consultation, until the business problem is solved. That old adage which refers to "a chain being only as strong as its weakest link," comes to mind (HAMMEL and ROCK-KOPCZAK).
New Business Relationships.
We exist in a paradoxical world where seemingly contradictory business relations find themselves coexisting within a supply chain. This is the notion that any one supplier may be dealing with another business enterprise that at once may be a competitor, a collaborator, and a supplier. For example, this sort of seeming business contradiction frequently exists in the North American telecommunications market (SHETH). This supply chain reality stretches the very limits of traditional purchasing and contracting theory and practice, which has typically seen business relationships defined solely by the terms and conditions of a legal contract (REEDS).
The implications which derive from a broader understanding of the complexities of supply chain management invite a restatement of the factors that are most likely to foster a successful supply chain management experience.
First and foremost, only a strategic view of supply chain management will provide the proper perspective one the resources and commitment required to make its engagement a success. Supply chain management strategies must necessarily focus on long-term business relationships, which are characterized as (1) Long-term, (2) Collaborative in nature, (3) Evidence an "open system" view of information sharing between all of the supply chain's elements, (4) Seek an end to adversarial relationships with suppliers of goods and services while (5) partnering with fewer, more agile suppliers; (6) View the ultimate objective of those engaged in supply chain management as that of becoming a "manager or relationships," and not merely a technical expert in a given functional specialty. This focus should fall equally on both internal and external relationships and (7) Seek to exploit the latest information technologies to leverage competitive advantage for all members of the supply chain.
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